Loan guarantees are an excellent way of leveraging available finance and a proven way of boosting credit to SMEs. Palestinian banks have historically been conservative in their lending practices. In particular, SMEs can find it difficult to access affordable finance unless they have considerable collaterals to offer as a guarantee.

The MEII facility backs loans of $10,000 to $500,000 with a 70% guarantee. Technical assistance is provided to banks to help them market their financial products more successfully. If fully utilised this ten-year facility could guarantee loans totalling $230m.

By the end of June 2012 the facility had over approximately $85m of loans to 446 SMEs.

Although no longer actively involved, The Portland Trust played a key role in establishing the MEII Loan Guarantee Facility. A number of activities were undertaken:

Acted as secretariat to the group of partners and compiled key documents and briefing materials.

Engaged British law firm Freshfields to prepare the legal agreements between banks and guarantors.

Established an advisory group with expert economists to stress test the parameters of the scheme

Funded a Palestine Economic Policy Research Institute (MAS) study on the demand for credit in the Palestinian SME sector, titled Financing Palestinian SMEs

Lobbied within Europe for increased funding for loan guarantees to Palestinian business.

Contributed to the running costs of the Loan Guarantee Facility in 2008

The Portland Trust Palestinian Chair, Samir Hulileh, sits on the Loan Guarantee Facility advisory board working to maximise its impact.

The Portland Trust also engaged European institutions for loan guarantees through a combination of lobbying and analytical work that demonstrated potential demand. The European Investment Bank and European Commission jointly provided an additional €24m for loan guarantees which was combined with €5m of funding from the German Development Bank, KfW. The €29m European Palestinian Credit Guarantee Fund (EPCGF) was launched in 2006. By the end of 2011, EPCGF had approved 2,174 loan guarantees, an accumulated portfolio of over $70 million. For updates on the EPCGF, see here.

The Portland Trust is a British non-profit ‘action tank’ whose mission is to promote peace and stability between Israelis and Palestinians through economic development.